The drilling and the protesting has begun... But amongst all the rhetoric, scaremongering and promises of outrageous fortune, lies a prety simple question we should all be asking

The summer of protest has begun. This week the Greenpeace-led Oil Free Seas flotilla headed out to one of two deep-sea sites to be explored by Texan oil giant Anadarko, this one off Raglan, the other off Canterbury. The protest is ramping up because the industry is doing the same, with New Zealand now getting a proper once-over by the global oil and gas industry.

Back in September Energy and Resources Minister Simon Bridges announced that the groundwork laid by his predecessors, Gerry Brownlee and Phil Heatley, was paying off:

“The summer ahead will be one of the largest on record for oil and gas exploration in New Zealand with 13 exploratory wells being drilled offshore and 27 onshore. The industry is expected to spend $600 million to $755 million.”

The government has said in the past that it reckons the sector can grown from $4 billion today to $12 billion.

So New Zealanders will be confronted repeatedly by a crucial question this summer: Is it worth it? It's a question that tugs at who we are as New Zealanders – conservers of a 100% Pure and priceless environment or a little battler trying to earn a first world living and diversify our national income. The answer is by no means black and white. Or black and green, for that matter.

At the moment we've been drilling for oil and gas in just one of 17 potential basins. Find them in another basin and the benefits have been described as "transformational" by the industry. If you doubt, consider Norway.

Last year it produced 1.9 million barrels of oil a day and earned $122 billion in exports. Over 40 years petroleum production has added more than $1800 billion to the country's GDP. And yes, that's the right number of zeroes. Norway is using that money to pay for its superannuation and, amongst other things, move to renewables.

Norway also raises some serious questions as to whether more drilling would really put our tourism, agricultural sector and clean, green image at risk. Think of Norway and many still think of pristine fiords, despite its vast oil industry and spills every year. It has twice as many tourists each year as New Zealand.

And while much of the criticism is about the risk of oil spills, what if gas is found? (It's more likely they'll find off Canterbury than oil). That has the potential for great environmental as well as economic benefit. As one industry insider told me, if a significant and sustaiable gas find was made off Canterbury, you could offer free conversions and get a significant chunk of the national fleet converted from petrol to CNG, cutting more greenhouse gas emissions than you could shake a whole (CO2 absorbing) forest of sticks at.

But in this industry, with big profit comes big risk. Well, very small risk but big, massive potential damage.

How small is the risk? Here's Environment Minister Amy Adams yesterday:

“The best international evidence tells us that on average, 2.5 loss of control events happen per 1000 wells – or a 0.25 per cent chance."

It's interesting to note David Robinson, the key lobbyist for the petroleum industry these days, when he says that unlike a Deepwater Horizon-style well, no New Zealand oil wells thus far have been gushers. That is, the oil doesn't flow out, it has to be sucked. So if something was to go horribly wrong off Taranaki now, the spill size would be expected to be minimal. If they find the same sort of wells elsewhere, we simply couldn't have a Gulf of Mexico-sized blowout. If they find the same sort.

But if a spill did happen – and the exploratory phase tends to be the riskiest phase – the damage to our reputation, our environment, to our national economy would be catastrophic. Only the densest spin doctors deny that. It'd be a mess. What's more Maritime New Zealand has no hope of coping with a deepsea spill.

A report commissoned by Greenpeace this year and written by Dumpak shows just how bad. A spill at either of the Anadarko sites could continue two and a half months before a clean-up vessel could be found (probably somewhere in Asia), have its existing contract terminated, steamed down to New Zealand (we're talking 2-3 weeks before it even arrives), and its work completed. The government dispute this.

Using Dumpak's estimates, which it says are industry standard, we're talking about something like 300 Renas worth of oil washing around, some of it reaching our beaches. That's right, 300.

Is that a satisfactory plan? Well, obviously no.

Here's the nub of it. Even with such a tiny risk, any wise government would follow the precautionary principle and have a complete response plan in place. That is, we'd have our very own clean-up vessel, safely docked in New Zealand and ready to sail at a moment's notice should the worst occur. That's the obvious way to cover the critics' concerns.

The problem is that such a ship would cost tens of millions of dollars to build, buy and maintain. Those inside government have told me it's just unrealistic.

So here's the real choice, in more sophisticated terms. We can explore for gas and oil that could be worth billions -- a game-changer -- and which presents only the tiniest risk of serious environmental damage. But only if we put the bulk of country's economy at jeopardy with a clean-up plan that's, well, not much of a plan at all. It's like asking a skilled and professional acrobat to do her routine without a net, knowing that if she makes it we both get rich, but if she falls its our bones that get broken.

So we come back to the same question. Is it worth it? What do you think?

(However there is one other side to this debate I haven't had time to canvass here - the green economy. I'll cover that in my next post, over the weekend or early next week).

Comments (52)

Or maybe it's like putting all your chips, indeed all your worldly savings, on all the roulette numbers but one. Would you risk it? The tension is between what you stand to gain (a lot) and the fact that if the >1 in a 100 chance comes in, you lose just about everything.

On Morning Report today David Robinson said “I think the most important thing for Kiwis is that we have good, responsible and mature discussions about what our energy options are for the future” That is exactly what must happen. Kiwis need to decide if we want a fossil fuel powered energy future ( and completely ignore climate change and ocean acidification) or if we want to develop renewable energy.

Please do some more research Tim before you buy into the ‘natural gas is good for the environment’ line. Natural gas is less worse for the environment than oil or coal, but because gas has 75% of the carbon emissions of oil, it does as much climate change damage in 4 years as oil does in 3. Natural gas is NOT a solution, it is not a bridge to anywhere, it is part of the problem. Money spent developing gas infrastructure is money that won’t be spent on renewables.

You shouldn’t have left your comments on climate change for another post. A discussion on the pros and cons of off shore oil drilling can not postpone consideration of climate change. If oil or gas is found off New Zealand, there may or may not be environmental damage from leaks and spills. If any oil, or gas, found off New Zealand is burnt, it is 100% certain that there will be environmental damage in the form of global warming and ocean acidification.

As citizens of the largest islands in Polynesia it would be morally wrong for us to profit from the fossil fuel industry the by-products of which will drown the homelands of our Pacific Island neighbours.

Viv, I said CNG cars would be better for the environment than petrol cars and that such conversions would cut our GHG emmissions. I don't think further research would prove me wrong in that statement.

The reality is that there's not an either/or choice we can make on fossil fuels tomorrow. Yes there's a moral questions as well. That's more of what I'll get into in the next post... You might not think I should have left that for another post, but I've got a paying job and a family so my boss and wife would disagree!

It's rather difficult to have a mature discussion when the Minister is redacting OIA responses, then claiming that the information is publicly available! That simply shows the arrogance of this government. To make matters worse, John Key claims there's only ever been one "problem" in the Gulf of Mexico. In fact, there's been dozens of major oil spills including the Ixtoc 1 which was one of the biggest oil spills in history. How Key could overlook this defies belief.
It's crystal clear that National have no interest contributing to a mature debate and want to drill at any cost.

Tim, I don’t want to keep you from your other commitments, but almost every time those in the media discuss off-shore drilling they (as you did) ignore climate change. The reality is that the world must keep 80% of known fossil fuel reserves in the ground if there is to be any hope of keeping below a 2 degree rise in temperature . We should not be looking for more to add to the problem

Much of our economy is powered by fossil fuels, we are not going to stop using them overnight, but new infrastructure needs to be built to transition to renewables as soon as possible.

As for Norway, oil production there peaked in 2000 and has been in steady decline since. The newly elected PM has decided against further oil exploration in at least one oil rich area. She realizes that sooner or later the bubble will burst and Norway could be badly exposed. I don't think Norway is a good example when it clearly is looking to reduce it's reliance on oil.

Ross: "So Andrew, if oil is found, that will be the end of child poverty? Wow."

Off topic but it needs a response.

In essence there is no 'child poverty' in NZ. It's just the latest catch phrase of the Left. Children cannot earn money so how can they be poor in themselves? So are their parent poor to the extent that they cannot provide a $2 packed lunch for their kids? As a child I lived on welfare with a single parent in the days when welfare was far stingier than it is now. Despite that I ever missed a meal. But we grew veggies and my mother didn't smoke, drink or gamble. We had no car. Nor Sky TV or cell phone because they weren't invented!

A budgetary analysis of a family or single parent living on welfare shows that in fact they can get along without missing a meal if they live responsibly, putting the welfare of their offspring first. So what is the excsue for kids going to school with no breakfast? It is clearly unacceptable and something has to change.

As for oil ending poverty, where do you think welfare cheques come from? It comes from middle class tax payers who have good jobs and work hard. The addition of an oil industry and/or mining would create more of those quality jobs and company profits both of which attract taxes, thereby paying for welfare and our conservation efforts.

Social commentators often talk about child poverty resulting primarily from parents making poor decisions about how they spend their money, bad morals, a poor work ethic, bad luck, unwise lifestyle choices and so on. While some parents undoubtedly make poor choices, there is little evidence that poor people mismanage their income to a greater extent than those who are better off. This is not to suggest that we should ignore the contribution of parental lifestyle choices and various social ills (including drug and alcohol addiction) to poor outcomes for children, but the main causes of child poverty lie elsewhere.

There's a wealth of empirical information out there on this issue that means we don't have to rely on anecdotal "when I was young, we did this" stories to see how the world is. So let's all do our own googling, make up our own minds, and not derail a thread that is on oil and gas with our ideological versions of how the world "must" be?

Andrew: To aid your comprehension of what the Commisioners experts said, I have copied out the relevant bit:

While some parents undoubtedly make poor choices, there is little evidence that poor people mismanage their income to a greater extent THAN THOSE WHO ARE BETTER OFF.

The point being that those better off can afford to mismanage their money to a greater degree...because they have more. It's also their money and thus not my concern.

Secondly point. As regards the esteemed 'Commissioner', his definition of poverty is: Proportion of dependent children aged 0–17 years living below the 60% income poverty threshold before housing costs (BHC)

This is statistical stupidity as any competent high school student will know. They have magically created hundreds of thousands of 'poor people' by drawing an arbitary line across the demographic. If we doubled the incomes of all NZers tomorrow, according to the Commissioner, there would still be the same number of folk living in poverty!

Back to the first comments... 40 wells next summer, 0.25% chance of spill for each, gives roughly 10% chance of a spill from one of those wells over their lifetime. I'd say "mildly possible" chance of a spill (perhaps the explosion bit was overstating it), and that a 10% chance of a bad outcome somewhere in or around NZ shouldn't be taken lightly.

No doubt there's a whole range of spill sizes possible, and some of them less catastrophic than others, but I really don't like the cross-fingers approach where robust risk management is necessary.

The problem is that such a ship would cost tens of millions of dollars to build, buy and maintain. Those inside government have told me it's just unrealistic.

Have they also told you they've done the numbers and it doesn't stack up, or are they relying on blind faith? Would it make any difference if the ship had a secondary purpose in peacetime - if that is possible - as a cargo ferry say? Might change the balance of the numbers and make it possible.

Last year it produced 1.9 million barrels of oil a day and earned $122 billion in exports.

Makes one wonder why we have to import fuel then.

As one industry insider told me, if a significant and sustaiable gas find was made off Canterbury…

/faceplam

There really is no such thing as a sustainable fossil fuel field. It will eventually run out (can't be sustained) and will enourmous damage to the environment while it's being used.

There's one other major difference between NZ and Norway - Norway does it's own drilling and so gets the full benefits of the extraction of the resource. NZ licences private companies to do the extraction and then gets a pitiful amount of royalties. This being true no amount of oil found in NZ teritory, including the EEZ, will change anything in the NZ economy. The rich will continue to get richer at everyone else's expense, everyone else will get poorer and the final result is that NZ won't have any resources left to suport our society at all.

It's not just a question of risk, it's also a question of what we lose and the answer to the extraction and export industry is that we lose everything.

As a child I lived on welfare with a single parent in the days when welfare was far stingier than it is now.

All benefits were decreased by 20% in the 1991 MOABudgets. Unless you're talking about a time before about 1935 when benefits were almost non-existent. The simple fact of the matter is that, over the last couple of decades, benefits have been declining as they became more and more targeted and National went on it's beneficiary bashing sprees.

A budgetary analysis of a family or single parent living on welfare shows that in fact they can get along without missing a meal if they live responsibly, putting the welfare of their offspring first.

[citation required]

Really, we have organisations going out there and looking at this and they keep coming back saying that benefits aren't enough. This government even refuses to measure.

The addition of an oil industry and/or mining would create more of those quality jobs

No it won't. Extraction industries are notorious for producing very few jobs. I'd be surprised if there were more than 10,000 in the entire country. Adding an oil well will add about another 100. As for the taxes? Forget it - corporations structure themselves in such a wa so as to not pay taxes. Apple: ~$500m in pofit, ~$2m in taxes paid with a supposed tax rate of 33%.

As for oil ending poverty, where do you think welfare cheques come from? It comes from middle class tax payers who have good jobs and work hard.

And what do you think taxes are? They're the cost of using our resources, our infrastructure. Amazingly enough, I think we all deserve some of that rent in the form of a Universal Income paid to every man, woman and child whether they work in a paid job or not.

And, just by an incredible coincidence, this then means you can choose to ignore the debate as it's all someone else's fault, thus you don't have to feel any guilt about your own current life or a need to do anything to address the issue. Because no-one in New Zealand is as poor as (say) the starving children of Somalia ... so why even talk about it here (except to shake our heads at the lazy, shiftless, good-for-nothing parents, of course)?

Isn't it great when the world turns out to be the way that not only makes your life easy, but also gives you a smug sense of moral satisfaction at it being so!

A jobless man can have little pride in himself.

Interesting. Did your mother lack for pride in herself, when she single handedly raised you on welfare?

But taking your point at its face value - which political party promising full employment do you vote for? Because if what you say is true, an economic system predicated on the need for structural unemployment to act as a disciplining force on wage growth (thus helping to curb inflation) seems to condemn a lot of people to a pretty bleak existence.

At the risk of further derailing the thread (but too late now!), here's some reading for people wanting to move beyond the "there is no child poverty, and even if there is, it's all the fault of the parents" meme:

It is interesting how the thread debating the risks of oil drilling, if deep sea drilling is better left until the technology is better and the level of profit made by state owned oil companies in Norway has been side tracked into one about child poverty with quite strident assertions. But let's assume it's all valid and retrack:

This also talks about the debate on a huge attack on consumer subsidies while there are producer subsidies for oil which seemingly has avoided a lot of press in NZ, but where Simon Upton is disagreeing with Tim Grosser.

This is going to be another debate of false comparison with Norway- much closer to Europe, so a much more economical tourist destination, has a state run oil industry, not a measly 5%, plus all kinds of government support such as attempts to prevent protests etc etc Reminds me of comparisons with Ireland that were made a long time ago, before if imploded and when it was getting a lot of EU support.

Andrew Geddis:And, just by an incredible coincidence, this then means you can choose to ignore the debate as it's all someone else's fault, thus you don't have to feel any guilt about your own current life or a need to do anything to address the issue.

Who is ignoring the debate? I am here, addressing it. Head-on. ;-) But you're right on one point - my genuine low-class origins absolve me of guilt.

Since this is off topic, maybe I should put electronic pen to paper on another thread and then we can do it to death. Warning: My views are not PC. What do you think?

Think Big - before my time in NZ but what would the NZ economy look like today without:

Glenbrook

The Clyde Dam

Marsden Oil refinery

The electrification of the main trunk line

Tiwai point smelter

The Waitara methanol plant

?

Whilst I gather the details of implementing these projects was inefficient and financially risky (the govt borrowed money to do it) the idea of world class industrial projects is a potentially good one. It's also not an either/or choice. If properly done, NZ can maintain and improve its tourism and conservation at the same time. Conservation needs money and the example of the minn gon the Denniston Plateau funding conservation efforts is a good one.

2/ An example of those jobs in extractive industry: NZ steel alone provides about 1200 direct jobs and possibly 5x or 10x indirectly.

The extractive part of NZ Steel where they dig up the iron sands. I doubt if it has 1200 people doing it. All the rest of the 1200 are in the process/manufacture part. I also doubt that it produces 5x as many jobs indirectly. It might produce between two and three times as many jobs indirectly.

Here's the thing, if extractive industries were so good then Waihi would be one of the richest places in NZ rather than one of the poorest.

Except that only happens in a minor fashion as we're exporting most of the stuff that's extracted. Same as we export all our oil. Well, actually, it's the private extraction firms that are exporting it all - we don't have a choice in how our resources are used.

I'm not against resource extraction it just has to meet a few standards:

It must be used for the good of the community and not for the wealth accumulation of the capitalists

Viv, it becomes a slightly circular argument. Yes we need to transition, but we need to survive until then. I'm not sure that the future and the present are quite as intractable as often made out. We are transitioning world over, but in the meantime...

Mudfish, I'm no expert but I don't think maths works that way. Each and every well is a 0.25% chance. You can't add them together. It's like tossing a coin. It's 50/50 every time. If you get nine tails in a row, then next toss is still 50/50 not 10%. Isn't it?

Draco, infinite and sustainable aren't the same thing.

MJ, geography aside, I don't see why it's such a false comparison. Anything policy-related we could change and mimic. And I don't think Norway has been a big recipient of EU, money for exactly the reason that it's incredibly wealthy, so the Ireland comparison doesn't work.

Basing our society around non-renewable resources is unsustainable because eventualy they will run out and all the infrastructure that we have will be wrong. We see this now but our present government and others around the world as if we can just keep digging up more and more fossil fuels and expecting that they will always be able to do so rather than using the time we have left with reasonable access making the necessary change over to renewable energy.

Fossil hydro-carbons could be used sustainably (or, at least, far more sustainably than they are now) by using them to produce recyclable plastics and then ensuring that those plastics are recycled. That's one example and there's possibly other ways in which it could be done but that's not what will happen with the oil that this government hopes to find in the basins around NZ. That will be used to maintain our unsustainable lifestyle for just that little bit longer and to enrich the already rich a little bit further.

The risks are clear but I take your point Tim that sometime we accept a risk for a benefit in return. The issue for me is just how big is that benefit for NZ. As others have pointed out our deal with the oil companies does not compare with Norway. 5% royalties sounds minimal. OIl industry job creation is minimal at best.

In any interprised big risks need to be matched by truly big benefits .

All we have here to gauge those benefits is

"The industry is expected to spend $600 million to $755 million.”

"The government has said in the past that it reckons the sector can grown from $4 billion today to $12 billion."

Those numbers are meaningless if we don't know how much of the 8 billlion increase will actually end up in kiwi's pockets or govt tax revenue.

Compared to Norway's $1800 billion its just a joke , we are being sold a very very poor deal.

Tim, the way the math works is: Well 1 has a 0.0025 (0.25%) probability of going bad so its probability of not going bad is 0.9975 (99.75%). Ditto for well 2, 3, 4 and so on. These are assumed to be independent probabilities (not necessarily a good assumption). What we really want to know is the probability of all 40 wells not going bad, which is all the individual probabilities multiplied together. So 0.9975 to the power of 40 equals 0.9047, so a 90.47% chance of no problem or 9.53% chance of a problem. That fits the "roughly 10%" quoted by mudfish. If the final probability is still fairly small, adding together lots of very very small probabilities actually gets fairly close to the correct result. And given that the 0.25% number quoted is just a crude estimate,...

However, if there were 400 wells instead of 40, just adding the probabilities of failure would suggest a 100% probability of failure (wrong). Multiplying together the probabilities of no failure gives around 37% probability of no failure/ 63% probability of failure.

The offshore drilling combines what have become the hallmarks of National actions: hasty and ill-conceived action returning little benefit to New Zealand, and permitted by hasty and ill-conceived legislation.

New Zealand's current pariah status for fostering human trafficking in the deepsea fishing industry descends in no small part from one of Muldoon's little urgency gems - the Fishing Industry Union Coverage Act (1977 I think). This kept the unions out of the deepsea industry, and unregulated and unobserved, the industry chose to pursue the 'slave ship' extraction model.

There is no reason to believe oil companies are more moral than fishing companies. So a sensible response from the incoming Labour government will be to throw the drillers out. If they have to rescind the TPPA to do so, so much the better.

Thanks Andre, was just working through the same and got your 9.53% as well, including a 0.45% chance of two or more spills. Rather than tossing coins, I was likening it to buying 40 lotto tickets or playing roulette 10 times - the probabilities of low chance events are approximately additive.

Norway's approach to its oil works well, because it appears to take a very dirigiste approach, backed up with a very strong OSH framework. Current policy in NZ, on the other hand, is more like banana republicanism, and I wouldn't be surprised if NZ seeing little of the profits becomes a bigger issue than a potential Deepwater Horizon-scale disaster.

If it's anything to go by, Anadarko is continuing to deny liability for Deepwater Horizon to this day. NZ struggled enough with the Rena spill, so Maritime NZ needs more than just lip service.

Over 4,000 DPB mums per year are having children whilst already being on DPB. No wonder so many of these kids are subsequently bashed or otherwise abused - they're likely born to generate income, not love.

The excellent research by the Youth Court has shown that having an absentee father is a key driver in future criminality. And so the cycle continues, and grows:

To go vaguely on topic, I don't accept the premise that a major oil spill would destroy the NZ tourism industry, even if it did, it's a declining industry with 3.6% of GDP paying wages that averge 60% of the NZ medium. It's very far from being the be all and end all of NZ. An oil spill doesn't kill the diary industry, why would it?

Obviously oil isn't going to last for ever, but there's no reason why we can't get 100 years from it, dairy can't last for ever without the ever increasing use of soil supplements.

On balance, we should get on and drill where ever we can, with the caveat that if it costs $20m or so to having a clean up vessel ready to go, we should pony up and get on with it.

Thanks for getting back on track Alan. The problem is that it's not a one-off cost. I'm not sure of the precise figures – not sure anyone is– but I'm told it's a very steep cost. Every year. And we haven't even found anything yet.

And thanks Alan for putting up a case for the lets drill side. I am devided on it I don't want to say no just because they is risk - oil spills etc - and you rightly say we should be fully resourced to deal with any oil spills .

I just can't see what the economic benefits will be to everyday New Zealanders but the risk numbers look scary. I can see the benefits for dairy farming but the risks there are enviromental as per oil and it doesn't seem we have a good record in really aknowledging or addressing enviromental costs.

Surely the economic benefits to "everyday new zealanders" are some high paying jobs, and a revenues flowing into the state to fund infrastructure development.

For some context I grew up in Scotland in the 70s when North Sea oil was coming online, I saw first hand the jobs it brought, they were transformational, esp in poorer communities. Norway handled it much better and invested the money. The spin offs premeated into many other industries. Sadly Scots elected to squander the cash and prop up Englands massive social problems, the Thatcher administration wasted the bulk of it on op-ex spending. I'd hope we'd be smarter with it.

Here's a thought, if the industry isn't at the scale where it can afford to pay for on call clean up, then it probably isn't at the scale to be all that risky.

Alan, chances are the majority of those jobs will go to third nations people. Since the destruction of NZ's shipping industry we are hardly in a position to fill those positions. Similarly, Scotland and northern England have well established heavy engineering capacity - NZ's has been destroyed by barking mad neo-liberal economists. Accordingly, even a moderate strike may deliver far less in the way of fuzzy math downstream jobs than an equivalent oil project off, say, Galveston.

It is not that this oil might never be developed, but that each case ought to be considered scrupulously. The Key government can't really do this, concepts like scruples, or competence, go over their heads.

Alan, Stuart has a point. Even industry folk have told me a lot of the best paying jobs will have to go to experienced people brought in from overseas. New Zealanders can still do better than average, but it's not a job-rich industry.

And as I've just written in my follow-up post, the revenues to our government aren't as much as you'll find in most countries around the world. I didn't mention it in the post, but we're fourth most generous in the world when it comes to what we take from the drillers – and of course most of the profits go back to overseas shareholders and HQs.

As for your earlier post, if we lost many millions over a single unproved botchulism scare, how much would we lose if the world saw even small amounts of oil on the Taranaki beaches, alongside those Taranaki cows? It's fine until a major spill, but then what?

Obviously oil isn't going to last for ever, but there's no reason why we can't get 100 years from it...

Again, I refer you to my next post. But the reason we can't get another 100 years from it is that by then we'd have a much warmer planet with any number of associated woes. If we haven't moved significantly away from fossil fuels by then, God help our grandkids.